Direct answer
A worked example of “commission vs spread” compares two common ways forex providers charge trading costs: (1) an explicit commission on each trade and (2) a spread, meaning the buy price and sell price differ. In practice, both can raise the cost you effectively pay, even if only one of them appears in the quoted fee line items.
Mechanics: what each term means (and what is being compared)
Spread is the difference between the quoted bid (what you receive when selling) and ask (what you pay when buying). If you enter at the ask and later exit at the bid, your trade starts with an embedded price difference equal to the spread.
Commission is an explicit fee charged for executing a trade. It is usually expressed per lot, per trade, or per unit of traded volume.
Worked comparison idea: Convert both cost types into the same unit, such as “cost in account currency for one round-trip trade” (enter and exit). That makes the comparison independent of whether the provider calls it “commission” or “spread.”
Worked example (scenario with stated assumptions)
Assumptions for the numeric example
Use one instrument and one trade size, and assume all numbers are fixed for this example:
- You trade 1 standard lot (assume this equals 100,000 units of the base currency).
- You do a round trip: one buy to open, then one sell to close.
- Spread cost is approximated as “spread (in price) × position size conversion,” and we keep the conversion consistent.
- Ignore additional factors such as financing/overnight charges, trading platform fees, and slippage.
- Commission is charged on the round trip as stated below.
Scenario A: commission is present, spread is smaller
Assume the provider charges:
- Commission: 7 currency units per round trip (already converted to your account currency for simplicity).
- Spread: 0.00010 price units.
To compare spread to commission in a simple way, convert spread into an account-currency cost using a consistent conversion factor. For this example, assume 0.00010 spread corresponds to 10 currency units of effective cost for a round trip on 1 lot.
So total estimated execution cost in account currency for scenario A:
- Commission: 7
- Spread cost: 10
- Total: 17
Scenario B: no commission, spread is larger
Assume the provider charges:
- Commission: 0 (no explicit commission).
- Spread: 0.00020 price units.
Using the same conversion assumption as above, assume 0.00020 spread corresponds to 20 currency units of effective cost for a round trip on 1 lot.
Total estimated execution cost in scenario B:
- Commission: 0
- Spread cost: 20
- Total: 20
Result of this example
Under the assumptions above, scenario A (commission + smaller spread) has a lower estimated total execution cost (17) than scenario B (no commission + larger spread) (20).
The key point is not which scenario is “better” in reality, but that you can verify the arithmetic once you know: (a) the spread size and how it translates into your account currency and (b) the commission fee structure.
Limitations and risks (where the comparison can break)
- Conversion and unit mismatch: Spread is quoted in price terms (often pips or decimals). Commission is quoted in fee terms (per lot, per trade). If you do not use a correct conversion factor for your pair and account currency, the numbers can’t be compared reliably.
- Execution differences: This example ignores slippage. If execution price moves while you enter/exit, the effective “spread cost” can be higher than the quoted spread.
- Hidden or variable fees: Some providers may include additional charges (for example, market data or platform fees) that are not part of commission-per-trade or spread, so “commission vs spread” alone may not reflect total cost.
- Time and market conditions: Spread can widen during volatile periods. A single worked example uses fixed assumptions; real spreads change over time, so historical relationships don’t guarantee future cost.
Verification and next question to answer
To independently verify a commission-vs-spread comparison for any real provider, collect the provider’s stated commission formula (how it is calculated per lot/trade and in what currency) and the typical spread behavior for your instrument and trade size, then convert both into a single “round-trip cost” metric.